President Xi Jinping is seen on a screen as Premier Li Keqiang delivers an annual government policy speech during the opening ceremony of the National People's Congress at the Great Hall of the People in Beijing.

Photo: Feng Li, Getty Images

President Xi Jinping is seen on a screen as Premier Li Keqiang...

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BEIJING, CHINA - MARCH 05: Attendants line up to serve tea before the opening session of the National People's Congress (NPC) at the Great Hall of the People on March 5, 2014 in Beijing, China. China plans to raise defense budget by 12.2 percent to 808.2 billion yuan (about 132 billion U.S. dollars) in 2014, according to a draft budget report submitted to the national legislature for review on Wednesday. (Photo by Feng Li/Getty Images) ***BESTPIX***

Photo: Feng Li, Getty Images

BEIJING, CHINA - MARCH 05: Attendants line up to serve tea before...

Image 3 of 3

TOPSHOTS A Chinese People's Liberation Army (PLA) officer practices to conduct the military band before the opening session of the 12th National People's Congress (NPC) at the Great Hall of the People in Beijing on March 5, 2014. China's annual show of political theatre, the National People's Congress, opens this week -- the first under a new Communist Party leadership facing intractable problems including endemic corruption, slowing economic growth and tensions with neighbouring countries. AFP PHOTO / WANG ZHAOWANG ZHAO/AFP/Getty Images

China's government responded to public demands for bold leadership with vows Wednesday to press long-sought market reforms, defend against terrorism after a horrific slashing attack, and heavily boost military spending amid rising tensions with Japan.

The promises delivered by Premier Li Keqiang in his first annual policy speech also included cutting official waste, combatting persistent smog and pushing ahead with President Xi Jinping's signature campaign to fight the rampant graft that has undermined public faith in the ruling Communist Party.

China announced a 12.2 percent increase in military spending to $132 billion. That followed last year's 10.7 percent increase to $114 billion, giving China the second-highest defense budget for any nation behind the United States, which spent $600.4 billion on its military last year.

Increases in China's military budget have regularly exceeded both total increases in government spending and the nation's rate of economic growth. That has allowed lavish spending on new hardware and better conditions for soldiers, raising concerns about how China intends to use its new-found power amid a rise in tensions with Japan over uninhabited islands in the East China Sea.

While becoming increasingly assertive in its own territorial claims, Beijing has at the same time accused Japan of renewed militarism and dwelled on Tokyo's history as an aggressor during World War II.

"We will safeguard the victory of World War II and the postwar international order, and will not allow anyone to reverse the course of history," Li said. Li announced an official growth target of 7.5 percent this year, signaling that the government would not let growth dip too low - or unemployment surge - while it carries out ambitious economic reforms. Li pledged to open state-dominated industries to private investment.

Li's speech at Wednesday's opening of China's annual ceremonial legislature comes as the government confronts ethnic unrest in the far-western region of Xinjiang that has intensified over the past year.